Trading the Plan

Step by step

There is a lot of advice out there about planning and trading.
I'm going to try and make this simple by giving you a template and
example that you can implement and follow without much work.

First off, the old saying: Plan the trade and then trade the
plan.

This is not bad advice but you need to put this into a structure
that is easy to implement, easy to use and easy to measure.

Whatever stage of trading you are at I suggest that you take
just one of the strategies that you trade (or want to trade) and
use that in this planning exercise - let's keep it simple, easy and
fast to implement. If we do that then all of you with and without
ADD (attention deficit disorder) will be able to do this, even
without Ritalin. (Later on you can come back and add
other strategies to the plan.)

There are 4 steps, 2 before you enter your first trade, 1 while
trading, and 1 after trading on the weekends.

Step 2 - Setup measurement and record keeping tool

(I assume day trading here but this can be used for any type of
trading)

Here is a spreadsheet that was used in another article that will
do very well as a template in this exercise:
Trade Records Template

Adjust the spreadsheet by deleting and adding columns to suit
the data that you want to collect. You will want to use the reason
column for the short name of the strategy that you are planning.
My example: MAXO.You may want to add a
column called Taken. Put a true or false in this column to indicate
if you took the setup or not.

Step 3 - Trading the Plan

While trading, after each entry and exit, note down the trade
details in the spreadsheet. Depending on what's happening in the
market and how you trade you may be able to do this immediately or
you may only be able to do this after the trade or day is over.
Fill in the spreadsheet as soon as possible while the trade details
are fresh in your mind. DO NOT make the filling in of the
spreadsheet a chore or you will stop doing it.

Note down the setups that you didn't take as well as the ones
that you took. Also note the difference between your actual results
and your planned results and the reason for the difference.

Step 4 - Measuring the Results

At the end of your first week of trading (and each week
thereafter) take a look at you spreadsheet and the results. I use
Excel as my spreadsheet program but these tools should be available
on all spreadsheet programs. On Excel you can use the Data ->
Filter -> Autofilter... option to select types of rows from your
spreadsheet. This will easily allow you to look at (for example)
Taken versus Missed trades and see if your results are skewed by
the trades that you missed that would have made your profits bigger
or smaller. Once filtered using the Autofilter feature you can just
select the cells in the
Net P/L column and in the status bar you will see a total and
this will be positive or negative indicating how this subset of
results (e.g. missed trades) would have affected your results.

(An aside: You will always miss some trades. Even if you have an
automated system you cannot stop the connection to your broker
going down or your automated system from crashing or disconnecting.
In the long run this should even out.)

Excel also has sorting and reporting abilities which allow you
to analyze your plan and its effectiveness easily.

Done

That's it, you're done! My objective in this article was to give
you the simplest, fastest and easiest trading plan that will be
effective in giving you real results that you can measure and work
with. By adding layers of complexity at the beginning just deters
traders from doing this. You can add more detail and more
strategies to this plan as you realize its effectiveness and use in
your own trading.